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Export Growth Stalls In Pearl River Delta |
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Posted by Truth About Trade & Technology
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Thursday, 20 November 2008 |
Forbes.com
November 20, 2008
Guangdong has been one of China's fastest-growing provinces, with the Pearl River Delta region emerging as a national focus of export growth since the early 1980s. But it now faces considerable challenges, exacerbated in the short term by the effect of the global slowdown on demand for what the region produced.
Guangdong owed its economic pre-eminence to massive inflows of foreign direct investment and the associated development of labor-intensive export manufacturing activities.
However, price advantages have eroded in the region, posing new challenges. Furthermore, where the Pearl River Delta's (PRD) labor-intensive manufacturing used to be the main engine of China's economic growth, higher value-added activities in the Yangtze River Delta region (YRD) have more recently emerged as a more important focus of growth as China seeks to move up the value-adding chain.
Recent challenges. For some time, export-orientated industrialization in the PRD has encountered serious challenges:
--Slowing export growth. In the face of the recent economic downturn in major overseas markets, exacerbated by the renminbi's appreciation, export-orientated industries have faced increasingly difficult conditions. These will intensify in coming months as the global economy slows.
--Rising raw material costs. Sharp increases in energy and raw material prices have eroded the competitiveness of many export industries. This has had serious implications for small and medium-scale enterprises (SMEs), which have been a dominant force in Guangdong and whose profit margins are often fragile.
--Tax rebates adjustments. Since mid-2007, tax rebates on export items have been reduced or eliminated. Many of the goods affected--such as clothing, footwear, toys and other light industrial products--are what the PRD produces.
--Labor and wages. Persistent labor shortages have emerged in the PRD region. A major contribution to this has been the reorientation of migrant labor toward regions, such as the YRD, with higher wages and better working conditions. Excess demand has exerted upward pressure on wages, which have risen by up to 25%. More rigorous enforcement of social security obligations has further increased the burden on employers.
These forces have had a deleterious impact on the provincial economy:
--In the first half of 2008, gross domestic product growth in Guangdong was just 10.7%, compared with 14.3% during the same period of 2007.
--Industrial retrenchment in the Delta region has been especially severe. In the first half of 2008, around 15% of all Hong Kong-invested firms closed down, while half of all shoe factories went out of business.
--On official figures some 50,000 enterprises closed in the first three quarters this year. (Although the province says there were tens of thousands newly registered companies, many may be small operations growing out of rising unemployment.)
Outlook. Some export product categories, such as machinery and electronics, have maintained more robust growth than traditional, labor-intensive ones. And in contrast to severe contraction among light industrial SMEs in the PRD, larger-scale manufacturers have continued to generate export growth.
This suggests that a firmer basis for renewed economic growth in Guangdong may lie in a combination of industrial consolidation and the readjustment of the industrial structure toward higher value-added products. Meeting such challenges requires the implementation of new policies designed to facilitate a more sustainable pattern of development based on industrial upgrading and greater economic diversification.
To read an extended version of this article, log on to Oxford Analytica's Web site.
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